United States v. Philip Morris USA Inc. , 686 F.3d 832 ( 2012 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued April 20, 2012 Decided July 27, 2012
No. 11-5145
UNITED STATES OF AMERICA,
APPELLEE
v.
PHILIP MORRIS USA INC., ET AL.,
APPELLANTS
Appeal from the United States District Court
for the District of Columbia
(No. 1:99-cv-02496)
Miguel A. Estrada argued the cause for appellants. With
him on the briefs were Amir C. Tayrani, Dace C. Martinez,
Robert F. McDermott, Peter J. Biersteker, Noel J. Francisco,
R. Michael Leonard, Michael B. Minton, Bruce D. Ryder, A.
Elizabeth Blackwell, Beth A. Wilkinson, and Thomas J.
Frederick.
Daniel J. Popeo and Richard A. Samp were on the brief
for amicus curiae Washington Legal Foundation in support of
appellants.
Sarang Vijay Damle, Attorney, U.S. Department of
Justice, argued the cause for appellee. With him on the brief
were Michael F. Hertz, Deputy Assistant Attorney General,
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and Mark B. Stern and Alisa B. Klein, Attorneys. R. Craig
Lawrence, Assistant U.S. Attorney, entered an appearance.
Katherine A. Meyer and Howard M. Crystal were on the
brief for appellees Tobacco Free Kids Action Fund, et al.
Before: SENTELLE, Chief Judge, BROWN, Circuit Judge,
and SILBERMAN, Senior Circuit Judge.
Opinion for the Court by Circuit Judge BROWN.
BROWN, Circuit Judge: In this latest round in the
Government’s heavyweight bout against the tobacco industry,
the defendant cigarette manufacturers challenge the district
court’s refusal to vacate injunctions imposed in 2009.
Because the district court’s ruling survives our review, we
give this round to the Government.
I
Thirteen years ago, the Government sued several
cigarette manufacturers and related industry organizations for
civil violations of the Racketeer Influenced and Corrupt
Organizations Act (“RICO”). The suit asserted the
defendants had conspired to deceive consumers about the
health effects and addictiveness of smoking. It sought
injunctive relief and disgorgement of $280 billion in profits
under RICO’s Section 1964(a). See 18 U.S.C. § 1964(a).
On appeal of an interlocutory order, we held Section
1964(a) did not provide a disgorgement remedy. We
explained that because the Section only affords the district
court with jurisdiction to “prevent and restrain” future RICO
violations, the court was “limited to forward-looking
remedies.” United States v. Philip Morris USA, Inc., 396 F.3d
3
1190, 1198 (D.C. Cir. 2005). Disgorgement, as “a
quintessentially backward-looking remedy,” was out. Id.The district court proceeded to conduct a nine-month
bench trial, make over 4000 findings of fact, and impose an
extensive set of injunctions. The court identified “more than
100 predicate [RICO violations] spanning more than a half-
century,” and found the defendants’ “numerous misstatements
and acts of concealment and deception were made
intentionally and deliberately . . . as part of a multi-faceted,
sophisticated scheme to defraud.” United States v. Philip
Morris USA, Inc., 449 F. Supp. 2d 1, 909 (D.D.C. 2009)
(“Injunction Opinion”). Based on that long history of
misconduct, and the defendants’ “countless [future]
‘opportunities’ and temptations to take similar unlawful
actions in order to maximize their revenues,” the court
determined there was “a reasonable likelihood that
[d]efendants’ RICO violations will continue in most of the
areas in which they have committed violations in the past.”
Id. at 909–12. Asserting its authority to “prevent and
restrain” the defendants from committing such future RICO
violations, 18 U.S.C. § 1964(a), the court prohibited the
defendants from making false or deceptive statements about
cigarettes, or “conveying any express or implied health
message or health descriptor for any cigarette brand.” Id. at
938. The court also ordered the defendants to issue
“corrective statements” in various media outlets about the
health effects of smoking, id. at 938–41, and disclose certain
marketing and sales information to the public and the
Department of Justice, id. at 941–45.
On appeal, we affirmed all but four discrete aspects of the
injunction order and remanded for further proceedings on
those narrow issues alone. See United States v. Philip Morris
USA, Inc., 566 F.3d 1095 (D.C. Cir. 2009) (per curiam)
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(“Affirmance Opinion”). We held the district court had
jurisdiction to issue the injunctions because it did not clearly
err in finding the defendants exhibited a reasonable likelihood
of committing future RICO violations. See id. at 1131–34.
And though we acknowledged that the court’s chosen
injunctions were “broad,” we held that breadth was
“warranted to prevent further violations where[, as here,] a
proclivity for unlawful conduct has been shown.” Id. at 1137.
Exactly one month after we issued our opinion, the
President signed the Family Smoking Prevention and Tobacco
Control Act (the “Tobacco Control Act” or the “Act”) into
law. See Pub. L. No. 111-31, 123 Stat. 1776 (2009). The Act
imposed stringent restrictions on the conduct of cigarette
manufacturers. It limited marketing by prohibiting
distribution of branded merchandise, id. § 102, false or
misleading labeling, id. § 903(a), and claims of reduced risk
of harm (such as the use of descriptors like “light” or “mild”)
without prior approval of the FDA, id. § 911. It strengthened
warning labels by directing cigarette manufacturers to include
one of several textual warnings on every pack. Id. § 202(b).
And to ensure enforcement, it granted the FDA a hefty
budget, id. § 919, and the authority to impose monetary
penalties, id. § 103(c).
The defendants responded by moving to vacate the
injunctions on jurisdictional grounds because the Tobacco
Control Act’s restrictions on their conduct eliminated any
“reasonable likelihood” they would commit future RICO
violations. Alternatively, they claimed the court should
vacate the injunctions out of deference to the FDA’s
newfound primary jurisdiction over cigarette sales and
marketing.
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The court rejected both arguments and left the injunctions
intact. See United States v. Philip Morris USA, Inc., 787 F.
Supp. 2d 68 (D.D.C. 2011) (“Vacatur Opinion”). On the
jurisdictional argument, it found the defendants were still
reasonably likely to commit future RICO violations because:
(1) the defendants were not likely to comply with the Tobacco
Control Act given their previous disregard for RICO and the
Master Settlement Agreement they had entered into with 46
state attorneys general in 1998; (2) the Act “target[ed]
different conduct” than the injunctions did; and (3) the
defendants’ pending lawsuits challenging the Act had resulted
in the invalidation of some of its restrictions, and could result
in the invalidation of even more restrictions, id. at 75–76. On
the primary jurisdiction argument, the court chose to retain
jurisdiction because several factors—including its relative
expertise in RICO cases, and the dissimilarities between the
proscriptions of the RICO statute and the requirements of the
Tobacco Control Act—weighed against ceding jurisdiction to
the FDA. Id. at 77–82.
The defendants appealed. We have jurisdiction to
entertain their challenge under 28 U.S.C. § 1292(a)(1).
II
The defendants advance the same arguments they
advanced below. Their primary argument is that the Tobacco
Control Act deprived the district court of jurisdiction by
eliminating any reasonable likelihood they would commit
future RICO violations. Their fallback argument is that even
if the district court retained jurisdiction following the passage
of the Act, it should have vacated the injunctions out of
deference to the FDA’s newly obtained primary jurisdiction.
We address those claims in turn.
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A
RICO’s “Section 1964(a) grants district courts
jurisdiction ‘to prevent and restrain’ RICO violations.”
Affirmance Opinion, 566 F.3d at 1131. Accordingly, the
district court only had jurisdiction to maintain its injunctions
if it found the defendants “exhibit[ed] a reasonable likelihood
of committing future [RICO] violations.” Id. The court
found such a likelihood existed despite the passage of the
Tobacco Control Act because the defendants “offer[ed] no
facts which would warrant revisiting” the court’s pre-Act
findings on their proclivity for misconduct. Vacatur Opinion,
787 F. Supp. 2d at 75.
The defendants contend the district court twice applied
the wrong legal standard. They argue the court erred first
when it refused to vacate the injunctions under a line of cases
involving intervening legislation. In those circumstances,
courts had “deemed cases moot where a new law [wa]s
enacted during the pendency of an appeal and resolve[d] the
parties’ dispute.” Log Cabin Republicans v. United States,
658 F.3d 1162, 1166 (9th Cir. 2011) (per curiam).
The intervening legislation in those cases is
distinguishable from the Tobacco Control Act because the
legislation there made it “impossible for the court to grant any
effectual relief whatever.” Cody v. Cox, 509 F.3d 606, 608
(D.C. Cir. 2007). In Log Cabin Republicans, for example, the
court could not grant the plaintiffs any effectual relief on their
challenge to the “Don’t Ask, Don’t Tell” policy because
Congress subsequently passed a law repealing the policy. See
658 F.3d at 1165–66. Similarly, in Diffenderfer v. Gomez-
Colon, 587 F.3d 445 (1st Cir. 2009), the court could not grant
the plaintiffs any effectual relief on their challenge to Puerto
Rico’s Spanish-only ballots because Puerto Rico subsequently
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passed a law requiring the bilingual ballots plaintiffs desired.
Id. at 450–51. By contrast, the Tobacco Control Act did not
make it impossible to grant effectual relief because it did not
make it impossible for the defendants to commit future RICO
violations; it did not repeal RICO, exempt the defendants
from RICO’s application, or legislate the defendants out of
existence. It simply subjected the defendants “to the
comprehensive regulatory oversight of the FDA.”
Appellants’ Br. at 31. The relevant question—as the district
court recognized—was whether that oversight made it so
difficult for the defendants to commit RICO violations that
there was no longer a reasonable likelihood of such violations
occurring. See Vacatur Opinion, 787 F. Supp. 2d at 75.
The defendants contend the district court made a second
error when answering that question. In reaching its
conclusion that the defendants “offer[ed] no facts which
would warrant revisiting” its earlier finding of reasonable
likelihood, the court noted that “‘a defendant claiming that its
voluntary compliance moots a case bears the formidable
burden of showing that it is absolutely clear that the allegedly
wrongful behavior could not reasonably be expected to
recur.’” Id. (quoting Friends of the Earth, Inc. v. Laidlaw
Environmental Services, Inc., 528 U.S. 167, 190 (2000)). The
defendants argue the court should not have imposed such a
“formidable” burden of proof because their claimed future
compliance with RICO was not “voluntary”—it was
mandatory under the terms of the Tobacco Control Act.
Of course, that argument assumes the defendants’
compliance with the Tobacco Control Act. And in light of the
defendants’ history of non-compliance with various legal
requirements, there was no reason for the district court to
make such an assumption. Indeed, the court expressly found
the Tobacco Control Act was not likely to produce
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compliance when RICO and the Master Settlement
Agreement (“MSA”) had failed to do so in the past. See
Vacatur Opinion, 787 F. Supp. 2d at 76. The defendants
claim the Tobacco Control Act imposes tougher restrictions
and penalties than the MSA did, and is therefore more likely
to spur compliance, but the Act does not provide for penalties
as sweeping as those available under RICO. If the defendants
were not deterred by the possibility of RICO liability, the
district court reasonably found the defendants were not likely
to be deterred by the Tobacco Control Act either. In light of
that finding, it was appropriate for the district court to hold
the defendants to the higher standard of proof reserved for
claims of mootness based on voluntary compliance.1
Even if the district court had found the defendants were
likely to comply with the Act, the injunctions would not have
been moot. There are significant parts of the injunctive order
that the Act does not cover, see Appellee’s Br. at 26–28, and
as the court noted, the injunctions, unlike the Act, are
specifically designed to combat racketeering activity, see
Vacatur Opinion, 787 F. Supp. 2d at 75, and therefore may be
enforced differently. Moreover, the scope of the Act itself
was unclear when the court ruled because another court had
struck down portions of the Act as unconstitutional. See id. at
76 (citing Commonwealth Brands, Inc. v. United States, 678
F. Supp. 2d 512, 521 (W.D. Ky. 2010)).
1
That finding—that the Tobacco Control Act was unlikely to
produce compliance where other laws had failed—also justifies the
district court’s refusal to vacate the portions of the injunctions that
overlapped with certain restrictions in the Act. See Appellants’ Br
at 46–51 (requesting such relief). If the defendants were not likely
to comply with those particular restrictions in the Act, those
restrictions did not moot the similar provisions in the injunctive
order.
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In sum, we hold the district court maintained jurisdiction
because it applied the correct legal standard, and did not
clearly err in finding the defendants still exhibited a
reasonable likelihood of committing future RICO violations.
See Affirmance Opinion, 566 F.3d at 1131.
B
The defendants’ primary jurisdiction argument fares no
better. When adjudicating a claim would “require[] the
resolution of issues which, under a regulatory scheme, have
been placed within the special competence of an
administrative body,” the primary jurisdiction doctrine
permits a court to suspend the judicial process “pending
referral of such issues to the administrative body for its view.”
United States v. W. Pac. R.R. Co., 352 U.S. 59, 64 (1956); see
also Reiter v. Cooper, 507 U.S. 258, 268 (1993). The district
court found “this case d[id] not present the appropriate
circumstances for invocation of the primary jurisdiction
doctrine.” Vacatur Opinion, 787 F. Supp. 2d at 78. We
review that ruling for abuse of discretion, see Nat’l Tel. Coop.
Ass’n v. Exxon Mobil Corp., 244 F.3d 153, 156 (D.C. Cir.
2001), and find none.
Although “[n]o fixed formula exists for applying the
doctrine of primary jurisdiction,” some principles emerge
from our precedents. W. Pac. R.R. Co., 352 U.S. at 64. “The
primary jurisdiction doctrine rests both on a concern for
uniform outcomes (which may be defeated if disparate courts
resolve regulatory issues inconsistently) . . . and on the
advantages of allowing an agency to apply its expert
judgment.” Allnet Comm’cn Serv., Inc. v. Nat’l Exchange
Carrier Ass’n, 965 F.2d 1118, 1120 (D.C. Cir. 1992).
Consequently, we have found the primary jurisdiction
doctrine applicable when the precise question before the
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district court was one within the particular competence of an
agency: whether a tariff levied by local exchange carriers
complied with FCC regulations, for example, see id. at 1120–
21, or whether, under FDA regulations, a new drug was “safe
and effective for interstate sale,” Israel v. Baxter Labs., Inc.,
466 F.2d 272, 280 (D.C. Cir. 1972).
The question before the district court here was whether it
was still reasonably likely the defendants would commit
future RICO violations despite the passage of the Tobacco
Control Act. As the district court observed, that question was
squarely within its area of expertise; 13 years of litigation,
nine months of trial, and 4000 findings of fact surely gave it
unique insight into the defendants’ tendency to circumvent or
ignore the law. See Vacatur Opinion, 787 F. Supp. 2d at 79–
80. And while the Tobacco Control Act gave the FDA the
authority to regulate much of the defendants’ conduct, it gave
the FDA no particular insight into whether the defendants
were likely to comply with those restrictions. That is why
courts consistently have refused to invoke the primary
jurisdiction doctrine for “claims based upon fraud or
deceit”—claims that are “within the conventional competence
of courts.” Dana Corp. v. Blue Cross & Blue Shield Mut. of
N. Ohio, 900 F.2d 882, 889 (6th Cir. 1990) (citing Nader v.
Allegheny Airlines, Inc., 426 U.S. 290, 305–06 (1976), and In
re Long Distance Telecomm., 831 F.2d 627, 633–34 (6th Cir.
1987)).
The defendants attempt to draw support from
Kappelmann v. Delta Air Lines, Inc., 539 F.2d 165 (D.C. Cir.
1976). There, shortly after Congress gave the FAA authority
to regulate the transportation of hazardous materials, the
plaintiff sought an injunction requiring an airline to provide
“adequate warning” to passengers about the “presence of a
significant amount of radioactive materials” on board a flight.
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Id. at 168. We affirmed the district court’s invocation of the
primary jurisdiction doctrine because the requested injunction
“would in effect constitute a regulation covering one phase of
the interstate transportation of one group of hazardous
materials on one airline,” and such “determinations [we]re
better made on an industry-wide basis in an agency
rulemaking proceeding.” Id. at 171.
Though Kappelmann bears a passing resemblance to this
case, there are two critical, and ultimately dispositive,
differences. First, in Kappelmann, we noted “that Congress
recognized the need for uniformity of regulation in this area”
when it passed the law empowering the FAA to engage in
rulemaking. Id. at 170. By contrast, when it passed the
Tobacco Control Act, Congress was aware of the district
court’s injunctions, see Pub. L. No. 111-31, 123 Stat. 1776, §
2(47)–(49), yet it explicitly stated the Act should not be
construed to “affect any action pending in Federal, State, or
tribal court,” id. § 4(a)(2). We can infer from that statement
that Congress was not concerned about the district court’s
injunctions interfering with the proper functioning of the Act.
The second difference is timing. In Kappelmann—and in
every other case the defendants cite on primary jurisdiction—
the court’s decision to defer to the agency came near the
beginning of the case. That is no coincidence. The primary
jurisdiction doctrine is rooted in part in judicial efficiency; if
an agency has particular expertise in an area, then invoking
the primary jurisdiction doctrine could “enhance court
decision-making and efficiency by allowing the court to take
advantage of [that] administrative expertise.” Chabner v.
United of Omaha Life Ins. Co., 225 F.3d 1042, 1051 (9th Cir.
2000). Here, the district court has spent over a decade with
the case, and has issued expansive injunctions that this Court
has largely affirmed. Vacating those injunctions now would
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turn the efficiency rationale for the primary jurisdiction
doctrine on its head.
III
The district court did not clearly err when it found the
defendants were reasonably likely to commit future RICO
violations despite the passage of the Tobacco Control Act.
Nor did the court abuse its discretion when it refused to
vacate its injunctions under the primary jurisdiction doctrine.
Accordingly, the district court’s denial of the defendants’
motion to vacate the injunction is
Affirmed.